The effects of financial innovations on the financial performance of commercial banks in Kenya

Abstract:

Financial innovations are now thought to hold the promise of a new commercial
revolution by offering an inexpensive and direct way to sell or buy products and services.
This revolution in the market place has set in motion a revolution in the banking sector
for the provision of a payment system that is compatible with the demands of the
electronic marketplace. The purpose of this study was to investigate the effects of
financial innovations on the performance of commercial banks in Kenya. The other
specific objectives of this study included: to determine the level of development in
financial innovations, identify an: ~ssible <:.l\allel ~ . ~ ~
~cla "innovafions, establish the effects of financial innovations on the financial
performance of -,commercial banks in Kenya, examine the rate of influence of
environmental context factors on the relationship between financial innovation and
fmancial performance among commercial banks in Kenya and determine the influence of
organisational context factors on the relationship between the innovation and financial
performance among commercial banks. The study is considered important to various
stakeholders including major players in the financial sector, i.e CBK, Bankers
Association, commercial banks, researchers, academic etc. The study consisted of 30
(representing70%) commercial banks of 43 in Kenya and was conducted on four top and
R&D management staff in Nairobi at their head offices and each branch of these sampled
banks. The respondents were issued with self-administered questionnaires to collect
primary data. The researcher employed the descriptive survey research design with multi
stage sampling technique for primary data and secondary data will be obtained from
researched work and articles, economic surveys CBK annual report and library. Data
collected was analysed by use of descriptive statistics, Pearson coefficient of correlation
multiple regressions; perception index using Statistical Program for Social Sciences
(SPSS).The study adopted tables and figures to report its fmdings. The literature review
identified what other researchers. have done in the area of financial innovations and
financial performance of intermediaries. The study was conceptualized to determine the
relationship between the dependent and independent variables and the influence of the
intervening variables on the relationship between the dependent and the independent
variables. However in all, the major fmdings of the study were that the development and
the challenges of financial innovations had no significant relationship with the financial
performance of commercial banks but there was a significant relationship between
financial innovation and fmancial performance of commercial banks. It was again found
that organizational and environmental context factors bore significant influence on the
adoption of financial innovation and the fmancial performance of commercial banks. This
study concludes that fmancial innovation development should be enhanced, challenges
affecting the growth of innovations should be seriously looked at and the aforementioned
organizational and environmental context factors require to be addressed in a bid to
encourage fmancial institutions to improve their financial products. The study is
important because banks have been blamed for not adequately satisfying demand for
fmancial services. The research contributes to the debate on how to enhance access to
financial services in Kenya.